Fiat Chrysler Can't Find a Buyer for Itself or Its CEO's Big Idea

Chrysler is hailed as one of the greatest success stories to come out of the Great Recession, so why is its CEO trying so hard to sell the automaker?

NEW YORK ( TheDeal) -- Left for dead in 2008, Chrysler and its Euro-American parent are now hailed as one of the great success stories to come out of the Great Recession. So why is the company's CEO trying so hard to sell the automaker?

Fiat Chrysler Automobiles NV (FCAU), the London-based company formed by the rescue merger of Chrysler by Italy's Fiat Group, has been a sales beast in recent years. The company has increased its U.S. market share by more than 3% in the last four years and has seen its New York Stock Exchange-listed shares double in the last 12 months.

Diminutive Chrysler was largely an afterthought as the government raced to save General Motors (GM) in 2008, with many industry watchers at the time expecting the White House to either combine it with GM or let it fail instead of pouring billions into the brand. The automaker's rebound is largely thanks to the vision of CEO Sergio Marchionne, the one-time Fiat head who championed a deal between the two mid-sized automakers and has overseen the turnaround.

Marchionne is not resting on his laurels. The executive has long been one of the industry's most outspoken advocates of consolidation, and according to auto industry sources, hopes to do a capstone deal before stepping down in 2019.

The executive came out swinging during the company's quarterly earnings call April 29, reviewing a 25-page report titled "Confessions of a Capital Junkie" that outlined the issues facing the auto industry and made the case for M&A. Marchionne earlier this month described the sector as "lethargic and unwilling to change."

The auto business needs combinations, according to the report, because of the tremendous capex and research spending required to meet emissions and safety regulations while improving the car connectivity and cockpit experience. The industry as a whole invests its entire enterprise value in product development every four years, according to Fiat, compared to an average of 20 years across all industries.

Top auto manufacturers, according to Fiat Chrysler, spent more than €100 billion on product development in 2014 alone. The result, the company said, is returns that lag well below aerospace, chemicals, packaging firms and other industrial segments.

So far, however, Marchionne's calls for consolidation have fallen on deaf ears. For Fiat Chrysler shareholders, the question is whether the lack of enthusiasm about M&A is because other executives aren't as visionary as Marchionne, or rather because Fiat Chrysler needs a deal more than the industry does.

Fiat Chrysler, despite its gains, remains a relative runt in the global auto business and is in need of a tune up. The company has made strides in paying down its debt but still is highly leveraged relative to its rivals and still suffers from performance issues and overcapacity in Europe -- especially in its home Italy market. As Fiat Chrysler notes, with automobiles becoming more technically advanced, there are increasing demands for cash and scale to invest in innovation and emissions reduction, giving a clear advantage to the world's market leaders.

Fiat Chrysler also faces oversized cash demands to refresh and redesign its brands, as well as to invest in restructuring its Alfa Romeo unit and to build the group's trailing presence in Asia. In the U.S., sales are up but Chrysler has taken some recent PR punches: It's vice president of quality resigned last October after Consumer Reports concluded that reliability at the company was on the decline, and Fiat Chrysler brands accounted for four of the bottom nine in J.D. Power and Associates' recent U.S. vehicle dependability study.

Marchionne has set aggressive growth targets, hoping to hit 7 million vehicle sales in 2018 compared to 4.35 million in 2013. Such growth seems unlikely without a deal or aggressive discounting that would cut into already lagging profit margins.